All future costs are relevant in decision making?
The statement "All future costs are relevant in decision making" reflects the perspective of considering all costs associated with a decision, including those that will occur in the future. Whether or not one agrees with this statement depends on the context of the decision and the specific costs involved. Here are some points to consider:
Context Matters:
- In some situations, only certain costs are relevant to a decision, and future costs may not play a significant role. For example, short-term decisions may only consider immediate costs and benefits.
- In long-term strategic decisions, however, it is often crucial to consider future costs, such as maintenance, operating expenses, and potential changes in market conditions.
- Relevance of Costs:
- Not all future costs are relevant to a decision. Only those costs that are incremental, or differential, and vary between decision alternatives are typically considered relevant.
- Sunk costs (costs that have already been incurred and cannot be recovered) are generally not relevant because they are not affected by future decisions.
In finally we can say
No, not all future costs are relevant to this decision. Future costs are costs that are expected to be incurred in future billing periods.Management typically calculates these costs based on probabilities, exchange rates, or inflation. Regardless of the approach taken, it is important for businesses to plan for the future. Future costs that will be incurred in the future as a result of a decision. Future costs are considered irrelevant if they do not change as a result of the decision.
Future costs are relevant in the process of decision making if their amounts will be affected. Future costs will be relevant in terms of opportunity costs, incremental costs and so on.
Future costs like committed costs, general overheads, sunk costs, non-cash expenses and so on are the costs that are not important for the decision making. Hence, all future costs are not relevant when making decisions.